Wed February 12, 2014

To Rent Or Buy? For The Federal Government, It's Complicated

The Bureau of Indian Affairs has been in the hot seat in recent weeks for mishandling the leases for some of its office space. The Department of the Interior's inspector general found that BIA violated multiple rules, including overpaying for space and renting too much of it — in some cases without government authority to do so.

But experts and federal reports suggest it's just the latest example in a long list of problems when it comes to the government's oversight of property it rents and owns.

"This is not illegal," says Leslie Paige, who examines the issue for Citizens Against Government Waste. "It's just simply bad management practices that there are no incentives to fix."

Every year the federal government spends $4.2 billion renting office space. Some agencies rent instead of own because they operate in critical locations with specific security or workplace needs. But other situations are more curious.

For example, when Health and Human Services' lease expires on its Rockville, Md., building, the agency will have paid rent on a private building for 60 years.

Leslie Paige says that makes little fiscal sense.

"The truth is some of this stuff is the big-ticket items," Paige says. "These are very expensive boondoggles."

The Government Accountability Office, the government's watchdog agency, looked at a number of properties and found other examples. According to one report, the Environmental Protection Agency in Seattle is renewing a lease that will keep it in its building for 50 years.

Many of these buildings have expensive rents. The Department of Commerce in Alexandria, Va., pays $60 million year in rent.

But leasing gives agencies flexibility to grow, shrink, upgrade or move, says Kurt Stout, who represents companies that lease to the government for the real estate company Colliers International.

"It's kind of like buying a car," he says. "Over time, the annual cost of repairs and maintenance and upgrades to your space, and even things like furniture and telecom, far outweigh the actual cost of the real estate itself."

However, he agrees that if the federal agency knows it will stay in a place for several decades, it makes sense to own.

"The thing is ... ultimately in the federal government, capital is scarce, so a dollar spent on real estate is a dollar not spent on something else that may be more fundamental to the federal government's mission," Stout says. "With private capital so plentiful in the commercial real estate world, why not take advantage of it?"

Procuring upfront capital has been an increasing problem in a cash-strapped Congress. The GAO found in its reports that the government rarely has the money to cover the costs of buying land and buildings, even if that means the agencies will end up paying 10 times as much in rent over the years.

Once agencies become used to renting a particular place, things can get more complicated when they start renovating space they don't own. The Consumer Financial Protection Bureau in D.C. recently told Congress it plans to spend $95 million to renovate the building it's renting from another agency.

The State Department also just spent $80 million renovating office space for a lease that's up in five years. It has an option to buy, but if it can't come up with the money, chances are the landlord will think about that when it's time to renegotiate the rent.

"That just is counter-intuitive," says Rep. Jason Chaffetz, R-Utah, who sits on the Committee on Government Oversight and Reform.

Chaffetz has introduced legislation to help get rid of thousands of government buildings that are sitting vacant or unused.

"When you see these departments and agencies leasing a building and then investing millions and millions of dollars to retrofit them for their specific need, it just sort of drives you nuts," he says, "At the same time that we've got 77,000-plus buildings that are under-utilized."

Chaffetz says federal agencies like the General Services Administration have been unable to account for all the buildings the government owns so it's hard to know if they can be of use. General Services told Congress they're working on it.

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Transcript

STEVE INSKEEP, HOST:

The Bureau of Indian Affairs is supposed to manage federal relations with many Indian nations across the country. But the bureau is accused of doing a bad job managing its own affairs.

RENEE MONTAGNE, HOST:

It faces questions about leases it's signed for many of its offices. A recent government report found the agency violated multiple rules that will cost taxpayers millions.

INSKEEP: Experts say it's just the latest in a long list of problems when it comes to federal property management. They say the federal government has lost track of what it rents, what it uses and what it owns.

NPR's Laura Sullivan reports.

LAURA SULLIVAN, BYLINE: The interior department's inspector general's office took look at 14 of the BIA's leases and found problems with all of them. The agency was overpaying for space or renting too much of it. In some cases, the agency didn't have the authority to lease space at all, all of which cost taxpayers an extra $32 million last year.

Leslie Paige with Citizens Against Government Waste says when it comes to federal property, that sounds about right.

LESLIE PAIGE: This is not illegal. It's just simply bad management practices that there are no incentives to fix.

SULLIVAN: Every year the federal government spends $4.2 billion renting office space. Some agencies rent instead of own because they're in critical locations with specific security or workplace needs. But others are more curious. Take Health and Human Services in Rockville, Maryland. When its lease expires, it will have paid rent on a private building for 60 years. Leslie Paige says that's crazy.

PAIGE: The truth is, some of this stuff is the big-ticket items. These are very expensive boondoggles that are going on.

SULLIVAN: Recent government reports have found many others. The Environmental Protection Agency in Seattle is renewing a lease that will put it in its building for 50 years. And these rents aren't cheap. The Department of Commerce in Alexandria, Virginia pays $60 million year in rent. But Kurt Stout of Colliers International, who represents companies that lease to the government, says leasing gives agencies flexibility to grow, shrink, upgrade or move.

KURT STOUT: It's kind of like buying a car. Over time, the annual cost of repairs and maintenance and upgrades to your space, and even things like furniture and telecom, far outweigh the actual cost of the real estate itself.

SULLIVAN: But if you're going to own that car for 30, 40 or 60 years, at some point you're doing better when you just flat out own it.

STOUT: I would agree with that. The thing is, is that ultimately in the federal government, capital is scarce, so a dollar spent on real estate is a dollar not spent on something else that maybe is more fundamental to the federal government's mission. And with private capital so plentiful in the commercial real estate world, why not take advantage of it?

SULLIVAN: Capital is a huge problem. The government's watchdog group, the General Accountability Office, found in its reports that the government rarely has the money to cover the upfront costs of buying land and building, even if that means agencies will end up paying 10 times more than that in rent.

And then the situation gets more complicated. Once vested in a place, agencies start renovating space they don't even own. The Consumer Financial Protection Bureau in D.C. recently told Congress it plans to spend $95 million to renovate a building it's renting. The State Department, it just spent $80 million renovating office space for a lease that's up in five years.

It has an option to buy, but if it can't come up with the money, chances are the landlord will think about that when it's time to renegotiate the rent.

REPRESENTATIVE JASON CHAFFETZ: That's just is counterintuitive.

SULLIVAN: Congressman Jason Chaffetz from Utah sits on the Committee on Government Oversight and Reform. He's introduced legislation to help get rid of thousands of empty government buildings.

CHAFFETZ: When you see these departments and agencies leasing a building and then investing millions and millions of dollars to retrofit them for their specific needs, it just sort of drives you nuts. At the same time that we've got 77,000-plus buildings that are under-utilized.

SULLIVAN: Chaffetz says federal agencies like the General Services Administration have been unable to account for all the buildings the government owns so it's hard to know if they can be of use. General Services told Congress they're working on it. Laura Sullivan, NPR News, Washington. Transcript provided by NPR, Copyright NPR.